FAT PROFITS

Columnist HL Mencken famously mused that “nobody ever went broke underestimating the taste of the American public”. Today, he might have added that nobody ever went broke underestimating the caloric restraint of the American public.

Far from going broke, MidOcean Partners and ACI Capital have reaped an 11x return in the sale of portfolio company Jenny Craig to Nestlé for $600 million (€470 million).

Jenny Craig is a well known chain of dieting counseling centres, where overweight clients pay to be prodded into leading healthier lifestyles. The company was founded in Australia in 1983 and has more than 600 outlets in the US, Canada, New Zealand and Australia. It is now based in Carlsbad, California.

In 2002, MidOcean (then the private equity division of Deutsche Bank) and New York private equity firm ACI Capital acquired Jenny Craig in a going-private transaction worth $115 million. About $45 million in equity was used in the deal.

In reinvigorating the Jenny Craig brand, the new private equity owners stole a page out of rival Weight Watchers' playbook – celebrity endorsement. Nine years ago, Weight Watchers hired as a spokesperson Sarah Ferguson, the Dutchess of York, who had gained weight following her divorce from Prince Andrew. The dieting services company structured a successful marketing campaign around Ferguson's battle with her weight.

Similarly, in 2005 Jenny Craig enlisted actress Kirstie Alley as a spokesperson. Alley, famous for her role on 1980s television sitcom “Cheers”, had ballooned as her star faded. Jenny Craig television ads chronicled Alley's weight loss efforts, while the actress' fame was bolstered by a reality TV show called “Fat Actress”.

ACI managing director Rob Sharp, in an interview with sister news service PrivateEquityOnline.com, said: “The Kirstie Alley campaign increased trial memberships. Because of some brand and product confusion, people had not been trying the program as frequently as they had been before. With the Kirstie Alley campaign, Jenny Craig became much more top of mind for consumers.”

Nestlé, of course, is best known for making high-fat chocolates. Its recent acquisition ensures that the company can profit by providing both the cause of and the cure for obesity.

BLACKSTONE, BAIN SHOP AT MICHAELS
The two major private equity firms have teamed for the $6 billion (€4.7 billion) buyout of Michaels Stores, a chain of arts and crafts stores. The two firms invested as equal partners in the transaction, paying a 30 percent premium on the company's share price as of March 20, before its announcement that it was to undertake a strategic review. JP Morgan advised Michaels, while Deutsche Bank, Bank of America and Credit Suisse advised the private equity firms.

UNIVISION ACCEPTS $13.7BN BID
Spanish-language media company Univision Communications has accepted an offer from a consortium of five private equity firms, in a transaction valued at approximately $13.7 billion (€10.9 billion) and one of the largest media deals in recent history. The investor group includes Madison Dearborn Partners, Providence Equity Partners, Texas Pacific Group, Thomas H. Lee Partners, and Saban Capital Group. Each firm is committing $900 million toward the deal, except Saban, which is putting up $250 million. The deal works out to a cost of $36.25 per share, with the acquiring consortium writing a sizable equity cheque of $3.85 billion.

HM CAPITAL ACQUIRES KNIGHTRIDDER DIVESTMENT
Newspaper publisher The McClatchy Company, which has agreed to purchase Knight-Ridder, the US's second largest newspaper chain by circulation, has sold the last of the 12 Knight-Ridder newspapers it plans to divest to a group led by Dallas, Texas-based private equity firm HM Capital Partners. Terms of the deal were not disclosed. McClatchy will sell the TimesLeader of Wilkes-Barre, Pennsylvania to The Wilkes-Barre Publishing Company, an entity newly formed by former Times Leader publisher Richard Connor, local Wilkes-Barre investors and HM Capital. HM Capital has a controlling share of the paper. On 26 June, Knight-Ridder shareholders approved the sale, which is estimated at more than $4 billion (€3.13 billion) plus an assumption of debt. McClatchy had announced in March that it would keep 20 Knight-Ridder newspapers and sell 12, from which it expects to make about $2.1 billion. The Times Ledger is the last newspaper to be sold.

GRAHAM JOINS APOLLO MEGA DEAL
Graham Partners, a middle-market private equity firm focusing on plastics, has partnered with Apollo Management to acquire Indiana-based Berry Plastics for $2.25 billion (€1.8 billion). Apollo will own a majority in Berry Plastics' common stock. The company, which manufactures and markets rigid plastic packaging products and container lids, announced in March it was putting itself up for sale. The sale marks the third time in ten years the company has been bought by private equity firms. The company was most recently owned by Goldman Sachs Capital Partners and JP Morgan Partners. In 1996, First Atlantic Capital bought Berry for around $55 million and sold it in 2002. The company, which in the fiscal year ending December 31, 2005 had annual sales of $1.3 billion, said that existing management would remain in place.

TPG TAKES J.CREW PUBLIC
Clothing retailer J.Crew debuted on the New York Stock Exchange on 28 June, raising $376 million (€294 million) in the IPO, well above the $320 million the company expected to receive. On its first day as a public company, shares in J.Crew surged by as much as 27 percent. The company, now 40 percent owned by Texas Pacific Group, sold 18.8 million shares at $20 each. TPG bought the company in 1997 for $500 million. In early June, J.Crew reported a 60 percent increase in first-quarter profit and sales showed double-digit gains. J.Crew posted a net income of $3.8 million in fiscal 2005, compared to a loss of $100.3 million a year ago.

APOLLO BUYS LORD & TAYLOR IN $1.2BN DEAL
Cincinnati-based Federated Department Stores, the second-largest US department store operator, has agreed to sell the Lord & Taylor department store chain to NRDC Equity Partners for $1.2 billion (€939 million) in cash. NRDC is a partnership between principals of Apollo Real Estate Advisors and National Realty & Development Corp. The 180-year-old New York department store chain had sales of $1.57 billion in 2004. Federated acquired Lord & Taylor when it bought May Department Stores last year for $11 billion. The firm is divesting because it is looking to concentrate on the Macy's brand, converting about 400 May properties into Macy's stores.

DC&R IN $3BN INSTANT IPO
New York buyout firm Clayton, Dubilier & Rice announced in June an agreement to buy a 47.5 percent equity interest in Sally Beauty Company, a division of publicly traded Alberto-Culver Company. Alberto-Culver, a consumer products conglomerate, will retain a 52.5 percent interest in Sally Beauty, which will be listed as a separate company on the New York Stock Exchange. Sally Beauty, based in Denton, Texas, is a marketer and distributor of professional beauty supplies with 3,290 stores. The transaction includes $575 million (€450 million) in equity from Clayton Dubilier and $1.85 billion in debt from Merrill Lynch. The deal is expected to close in the fourth quarter.

WHITE OAK RETURNS 23.5X TO INVESTORS
In a partial exit from its first platform investment, White Oak Group, a new Atlanta firm focused on military technology, has realised a 23.5x return and 485 percent IRR from military technology provider DataPath, The Georgia-based company provides satellite earth terminals and communications support services for forces deployed in Iraq. White Oak maintains a 30 percent share in the company.